The 56th GST Council meeting, chaired by Union Finance Minister Nirmala Sitharaman on September 3, 2025, approved a landmark overhaul of the Goods and Services Tax structure. The Council recommended replacing the existing four-slab system (5%, 12%, 18%, 28%) with a simplified two-slab regime of 5% and 18%, alongside a new 40% rate for luxury and sin goods such as tobacco, pan masala, aerated drinks, high-end cars, and private aircraft.
Under the revised structure, essentials including food products, medicines, milk-based items, electric vehicles, and insurance premiums fall under the 5% slab, while standard goods like electronics, cement, vehicles, and apparel attract 18%. The new rates came into effect from September 22, 2025. The reform, termed GST 2.0, is aimed at simplifying compliance, reducing the tax burden on common consumers, and boosting consumption-led economic growth.
The restructuring addresses long-standing complaints from industry about the complexity of the four-rate system, which created classification disputes and increased compliance costs particularly for MSMEs. The Group of Ministers on rate rationalisation, led by Bihar Deputy Chief Minister Samrat Chaudhary, had recommended this overhaul after extensive consultations with state finance ministers and industry bodies.
The GST Council also approved the creation of a GST Appellate Tribunal in all states, to accept appeals before the end of September 2025 and commence hearings before the end of December 2025, providing a faster dispute resolution mechanism. Revenue implications of the rate restructuring are expected to be revenue-neutral over 18 months, with the government projecting improved compliance to offset rate reductions in certain categories.